On June 30, the Supreme Court struck down the Biden administration’s student loan debt-relief plan, denying 40 million eligible borrowers cancellation of up to $20,000 of federal student loans. So if SCOTUS’s decision has you looking at your balance and asking ‘what’s next?,’ you’re not alone. For tips on tackling student loan debt in the wake of the ruling, we tapped Brenton Harrison, a certified financial planner and the host of the podcast “New Money New Problems.”
What should I consider when choosing a repayment plan?
There are three factors to consider: your household income, your student loan balance, and your student loan payment’s impact on the rest of your budget. If your loan balance is less than your household income, it’s likely that the best path forward is to repay them at the lowest interest rate possible. But if your loan balance is higher than your household income, the cost of paying down loans aggressively might prevent you from addressing equally important areas of your finances, like paying your other debts or saving for retirement. For those with high private loan balances, it can be beneficial to stretch out the repayment period in exchange for a lower monthly payment. (Think: Choosing a 15-year repayment plan with a lower monthly payment instead of a 10-year plan.) For borrowers with federal loan balances higher than their income, pursuing forgiveness through the available federal programs can cost less than trying to repay them in full.
Where can I find more info about my options?
The Department of Education has contracts with private companies that service federal student loans. While each servicer has information available on their websites or their customer service line, the largest and most accurate source is always the Federal Student Aid website, studentaid.gov. The site also has loan simulators where you can model repayment scenarios, along with applications for programs like Public Service Loan Forgiveness (PSLF) and loan consolidations.
What about short-term relief options like deferment or forbearance? What are the pros and cons?
Many private student lenders offer forbearance (periods where you can pause payments if your finances are in rough shape) for three months at a time, and up to 12 months total. Federal loans offer deferment (where interest typically doesn’t accrue on your loans while payments are paused) as well as forbearance (where interest continues to accrue) for up to three years. That said, these pauses might not offer credit towards forgiveness programs like income-driven repayment (IDR) and PSLF. With federal payment plans available (where even $0 payments can count toward forgiveness), I consider deferment and forbearance a last resort.
What are some other forgiveness options available to student loan borrowers?
The most widely-available form of student loan forgiveness is offered by IDR plans, which can wipe away student loans after 20 or 25 years of repayment. There’s also PSLF, a program that forgives student loans for workers in public service after 10 years of payments. There are also programs for borrowers in specific professions, like Teacher Loan Forgiveness.
Answers have been edited for length and clarity.
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